December is a busy month for everyone’s finances — including farmers. A blizzard of seasonal spending, from holiday travel to end-of-year celebrations, is enough to make even the most money-conscious among us skid out of control. So before grabbing your festive party hat and confetti poppers, slow down and reflect on your 2022 financial choices by counting down five simple questions. The answers could help you regain traction and steer you toward a prosperous new year.
Ready to count down? Let’s get started.
1) Did I contribute the maximum allowed to my retirement savings account?
The more cash you put toward retirement today, the less you may need to worry about money in your golden years. Time is on your side when saving money for retirement as long as you put money away early and often. Thanks to compounding interest, the sooner you start saving the maximum allowed each year in an Individual Retirement Account (IRA) or another retirement plan, the less you’ll have to save to build a substantial nest egg.
If you are age 50 or older, you might be eligible for catch-up contributions. Most plans allow this age group to contribute more than the annual maximum. Connect with a Lincoln Savings Bank representative to develop a realistic savings strategy to help you achieve your retirement goals.
2) Does my emergency fund equal at least six months of living and farm expenses?
Without a hefty financial cushion for emergencies, an unexpected reduction in income could make it difficult to pay bills and keep your farm running smoothly. But building a six-month cash reserve takes time and can be intimidating. Gain peace of mind — and the funds to cover unexpected expenses — by starting small and staying consistent.
Let your first savings milestone be a fraction of your ultimate goal, say $500. Set up a monthly recurring bank transfer of $50 from your checking account to a dedicated savings account, and you’ll reach your initial savings target in 10 months. Once that goal is met, establish another one to ensure you continue your commitment to growing the account. Deposit tax refund checks and other “found” money to the account, and achieve your savings goal even faster.
3) Are my credit lines at or near their limits?
Low credit scores are often associated with credit profiles that maintain high balances. If you need to secure an ag loan with a competitive interest rate or borrow money for other purposes, a low credit score could stand in your way. Review your budget. Look for ways to reduce expenses and redirect those savings to debt reduction.
The end of the year is also an excellent time to ensure your credit report is error-free. Incorrect information can harm your credit score. Request free copies of your credit history reports from AnnualCreditReport.com. Then follow each credit bureau’s dispute policy to have inaccurate data removed.
4) Which farming product or service was the most profitable in 2022?
The financial health of your farming business likely influences your ability to cover household expenses. While maintaining profitability is top of mind year-round, assessing which products were the top money makers could prove fruitful. Many farmers added cover crops and used other strategies to increase their income in 2022, and now it’s time to parse out which efforts were the most profitable.
If all your products and services had a mediocre financial performance in 2022, you could still increase your 2023 farming revenue by adding in-demand products and services. For example, you might grow niche crops and share the new offering with potential buyers through concentrated marketing efforts.
5) What was my largest farming expense in 2022?
Positive cash flow is at the heart of profitable businesses. While you can’t control rising fuel costs, you can make expense adjustments to keep your business in the black. Even during lower-earning years, farmers can improve cash flow by reducing input costs. For example, you might re-negotiate with vendors, order bedding supplies earlier than usual, and replace branded seed and chemical products with generic alternatives.
Complete a financial review before the clock strikes midnight on December 31, and use your results to set your 2023 money goals. It might be the best choice you make all season!
